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Making Star Tv Shine (Int'l Edition)

May 28, 2000

International -- Asian Business: Hong Kong

Making Star TV Shine (int'l edition)

James Murdoch, son of Rupert, has a dot-com strategy for the troubled satellite broadcaster

Another year, another strategy for Rupert Murdoch's Star TV. Since 1991, the Asian satellite broadcaster has changed its game plan repeatedly in an attempt to grab eyeballs from Korea to Thailand to Saudi Arabia. In the past decade, Star TV has been an English-language provider, a local-language broadcaster, and most recently, a direct-to-home satellite operator. Now, it's looking to cyberspace. "We're getting into much more activity in the Internet," says new co-chairman James Murdoch, the 27-year-old son of News Corp.'s chairman. "The time is right to really assert ourselves."

The Internet, one might argue, is a perfect fit. It's a sector full of companies that spend lavishly, where profits are always just around the corner--a situation exactly like Star's. Since News Corp. bought the network in 1993, Star has lost an estimated $1 billion. Chief Operating Officer Bruce Churchill has said most recently that the broadcaster won't be profitable before 2001.

If all goes according to plan, by then Star will be part of another company. News Corp. is considering injecting the satellite broadcaster into a bigger vehicle, tentatively called Platco. The new company's strategy is familiar enough: provide set-top boxes that connect TVs, PCs, mobile phones, and handheld devices, allowing viewers to watch television and surf the Internet at the same time.

Platco would bring under one roof other Murdoch satellite-TV ventures such as Britain's profitable BSkyB, as well as News Corp.'s stakes in TV Guide and NDS Group, an artificial-intelligence outfit. The goal is to take Platco public at some point. But with Star's spotty track record, including embarrassing setbacks in India, China, and Hong Kong, investors might see the broadcaster as a drag on the initial public offering.

That in part is why Rupert Murdoch has sent James to Hong Kong. Murdoch Jr. is leading Star's push into new businesses, investing more than $150 million in about 20 Asian dot-coms. Star hopes these Internet companies will enable it to provide its viewers with local-language content--everything from Chinese chat rooms to Indian auctions.

Murdoch also figures the Internet investments will position Star to play a role in a region where the personal computer and the mobile phone are quickly emerging as entertainment and news platforms. News Corp., a latecomer to the Net, recently has taken stakes in companies such as Hong Kong's renren.com, a Chinese-language portal, and Bombay-based Baazee, an auction site.

Renren.com founder and CEO Michael Robinson says the connection to News Corp. will provide new opportunities to increase traffic on his portal. Moreover, he adds, "we can translate their content into Chinese and create exclusive content for them online." Over at Indya.com, a Bangalore-based portal in which News Corp. bought a stake, CEO Sunil Lulla is counting on News Corp.'s "experience building global brands and relationships around the world."MISSTEPS. James Murdoch should fit in well in Asia, where many businesses are closely held family operations. He certainly need not fret about charges of nepotism. Jeffrey Yu, regional president for ad agency Bates Worldwide Inc., likens him to another billionaire's son trying to make it big in Asia's cyberscene: Richard Li, chief executive of Internet investment company Pacific Century CyberWorks (PCCW) and son of Hong Kong billionaire Li Ka-shing. As with Richard Li, people know James has a direct line to his father.

Still, James can't run from Star's troubled history. Most recently, the broadcaster has become embroiled in the battle for control of Hong Kong's telecom leader, Cable & Wireless HKT. Star had plans for a joint venture with HKT to offer interactive television and high-speed Internet access. Since then, PCCW's Li has launched his bid for HKT.

It was Li, ironically, who founded Star and sold it to News Corp. in 1993 for almost $1 billion. News Corp. wasn't keen on working with Li's team, which originally devised Star's unprofitable English-language business model. So News Corp. promised to invest in Singapore Telecommunications if its rival bid for HKT was successful. PCCW, however, seems to have prevailed.

The defeat may have put Star's HKT deal in jeopardy. James dismisses speculation about bad blood between his father and Richard Li as "B.S." He insists that the joint venture is going forward. However, there is no way to say for sure that the deal is solid until it becomes clear who owns HKT. Shareholders of HKT's parent, Cable & Wireless, will not decide whether or not to accept PCCW's offer until mid-June at the earliest.

And even after that, the fact that Star and PCCW are both trying to do similar things across Asia indicates that these rivals likely will find it hard to cooperate in any HKT joint venture. In the meantime, rumors continue to fly that News Corp. and SingTel are planning another bid for HKT.

As it attempts to straighten out the mess in Hong Kong, News Corp. is still trying to recover from missteps in India and China. Star recently dissolved its partnership with media company Zee TV, India's largest private television broadcaster. More troubling was the flop of ISkyB. With great fanfare, News Corp. was prepared to launch the direct-to-home satellite channel for India in 1997--without first getting the green light from New Delhi.

Bad move. Protectionist sentiments prompted the Indian government to deny permission, forcing News Corp. to scale back its plans dramatically. "We came up against a brick wall," concedes Peter Mukerjea, chief executive of Star TV in India. He still hopes New Delhi will relent and allow Star to operate direct-to-home on the subcontinent.

The problems with Beijing are equally severe. News Corp.'s ambitions to beam programs directly to mainland homes has gone nowhere because authorities refuse to open the market to foreigners. "Those hopes have been dashed," says an industry insider.BLURRY PICTURE. The Murdochs are finding the bureaucratic morass also extends to the Internet. As part of its dot-com drive, News Corp. recently bought a minority stake in Chinese portal Netease, which planned to list on Nasdaq this spring. But regulators in Beijing appear to have scuttled the move--threatening to put Netease at a disadvantage when competing against such publicly traded rivals as Sina.com and Chinadotcom.

Even as News Corp. pushes ahead with its Net deals, the picture remains blurry for Star's core TV business. A recent survey by British media buyer and consultant CIA Medianetwork found that Star lagged far behind rival networks such as CNN and Discovery in the minds of key ad executives. Star channels "are not regarded as being innovators," says Tess Craven, general manager of CIA Media in Singapore. "If you are after pan-regional clients, you go for the business channels because they are must-haves," she says. "Star doesn't have the must-haves."

If News Corp. can convince investors that Star is more of an Internet play, then the company might be better able to dismiss such concerns. Some analysts have boosted their valuations of Star to $5 billion, up from $2 billion. So Star's new team will continue talking up the company. "It's easy to get scared by the naysayers," says Churchill. But "News Corp. has a track record of getting in a situation and figuring it out." James Murdoch's challenge is to figure out Asia.By Bruce Einhorn in Hong Kong, with Tracey Aubin in CanberraReturn to top